5 MinsOct 28, 2022
Rising inflation or cost of living is playing a spoiler the world over. To control the price rise, major central banks across the world have swung into action -- turned hawkish and raised interest rates. The Reserve Bank of India (RBI), since
the beginning of the financial year 2021-22, has raised the policy repo rate by 190 basis points (bps) and is focussed on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.
The rate hike has come in after being very accommodative in 2019, in the two years of the COVID-19 pandemic (2020 and 2021), which brought a lot of economic hardships.
Reasons your home loan rate may go up
In response to the interest rate cycle turning upwards, banks and Non-Banking Financial Companies have begun to raise their benchmark lending rates in the last few months. If inflation
continues to remain sticky and credit growth remains encouraging -- which is the case so far -- it is possible that borrowing rates may move up further.
This means that Home Loan interest rates will also go up. Thus, as a prudent loan planning exercise, you must know how much the EMI will be on your home loan. If you already are
repaying an existing home loan, you have broadly two options with interest rates moving up –– 1) allow the EMI to increase (wherein the home loan tenure remains unchanged), or 2) be ready for a slight increase in tenure (whereby
the EMI you are paying currently remains the same).
A rise in the input cost prices of steel, cement, etc., impacts the housing market. Thus, if you are considering buying a new house, it may become dearer.
[Also Read: Considerations when choosing between a Long-Term or Short-Term Home Loan]
A higher down payment and principal for the home loan would weigh down on your home loan affordability. So, opt for a house that is within your budget and borrow after considering factors such as your monthly income, the down payment you can afford,
the home loan amount you require, the interest rate and the tenure of the loan.
If your monthly income is fixed and the amount is high, you can arrange a higher down payment amount and don’t have many loans to service, you may be able to afford a higher amount as a home loan.
As a general rule and in the interest of your long-term financial well-being, the EMIs you pay on all your loans should not exceed 35%-40% of your Net Take Home (NTH) pay.
Further, take into account the additional costs such as stamp duty, registration fees, cost of parking, society maintenance, interior decoration expenses, etc, that come with a property purchase.
Currently, if you are considering purchasing a big-value asset such as a house property during this festival season, don’t let emotions override your decision-making ability. Make sure you do a technical evaluation of the project under consideration,
and only if you are satisfied with it, consider the builder’s offer. If you need professional guidance, speak to your lawyer, Chartered Accountant (CA), or wealth manager for valuable insights.
To make your dream come true, Axis Bank is currently offering home loans at an attractive rate of interest and longer loan tenure. Plus, the processing fee is
minimal. All these facets make a home loan affordable for you.
In a rising interest rate scenario, for comfortable payment of EMIs, it would be sensible to increase the tenure of the Home Loan and, whenever possible, prepay to reduce your debt burden.
Reach out to Axis Bank for the best home loan deal this festive season.
Disclaimer: This article has been authored by PersonalFN, a Mumbai-based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.